2017 tax law: Salaried or a contractor, witch is better? II

PAYSTUBMAKR.COM  Presents, the second part of the W-2 and 1099 contracted workers. According to the new tax bill of 2018 is bringing advantage for the people that are employed as contractors or those who like to change from W-2 to a 1099 contracted workers.

Go on 1099 contractor job you get your paystubs   

The 1099 contractor job and the application of the 20% pass-through deducting yield $3.954 net gain on the same $100,000 but regular W-2 salary employment. That is a big difference just for being a contractor. We are talking about a little bit more than two weeks work value.

That is a change from the past tax law where the contractor paid more tax than a salaried person.

Related imageContractors

Reporting Payments to Independent Contractors

You should consider changing your relations with the company you are working for from W-2 to 1099.

Calculating is the same model but different wage level that are changed to 1099 contract. See the table below:

Starting at 2018 tax-year. The chart compares filing of two persons making the same gross income, one as W-2 and the other as 1099 contract. One will use the pass-through 20%, and all his income qualifies for the 20% pass-through. It is evident that the more money a self-employed is making, the more significant is the advantage. The rich one becomes more wealthy under this law.


You can make instantly printable pay stubs for your self-employed job 

The pass-through deduction new law benefits the higher income because the law income pays fewer taxes on the basic income. The lower brackets pay less percentage of tax to compare to the higher brackets. The way pass-through deduction is calculated benefits the higher earning. For the low-income taxpayer,s it is still better option to stay a W-2 employee. qualifies for the 20% The higher is your income the better you are with pass-through deduction. It will be good the become a small consulting business than an employee of a medium or big company. It may be that your employer will not like the idea of having you independent, so you will need to see how to do the change or change your working place.

There business is to serve

Annual Salary 1099 saving of tax Benefits in %
$30,000.00 $458.00 Too Low benefits 1.5%
$60,000.00 $2,133.00 Low benefits 2.8%
$100,000.00 $3,954.00 Med benefits 3.55%
$150,000.00 $7,783.00 High benefits 5.18%

Tax percentage is adjusted relative to the income; the old rule is that who makes more pays more. Pass-through deductions are showing the opposite. There is a limitation to that. The higher amount to apply pass-through is $175,500 per individual or $315,000 for a couple, of the total taxable amount before applying the pass-through, this is where you can feel income limitations. Tax limits for the 2018 pass-through

 You are on W-2 salary self-employed click for paystubs    

Self-Employment Tax (Social Security and Medicare Taxes)

The red boss is on W-2 wage

First is called Wage and Property, it is applied to the people that are under it in this way:

1. 50% of the salary paid to an employee if you are a contractor with no employees it is = a zero

2. 25% of the W-2 wages you pay to your employees, plus 2.5% of “qualified business property” this last one will be valued as Zero for our 1099 paid.

The limit phase for “wage and property” is over $50,000 for individuals and 100,000 for couples. It will be full in place over $207,500 and $415.000 for a couple.

Paystubmakr.com is the place for a paystub  Service Businesses

Service Business is those businesses that provide a professional service like the fields of health, law, athletics, financial services, consulting, brokerage services, or any provider of service.

Those businesses have do not have a tangible product or production job; it is the skill or knowledge what they provide or apply in favor of their clients. The primary asset they have is the reputation and trained owners or partners they have. 1099 contractors can be defined as Service Business.

Thier contract is running

The limits for Service Businesses are phased on the income range of a pro-rate basis. When you have 80% of phase-out range, you can take only 20% as self-employment gains as deductible. Once you are over the phase-out range, there is no more deduction as a service business.

The majority of the people working under 1099 contractors are service businesses, that means the most contractor are unable of using the deduction if their income is more then the phase-out limits.

If you are that lucky to have your higher earnings then the income limits, you will not enjoy the tax benefits of a contractor or self-employed.

(Circular E), Employer’s Tax Guide IRS

Important warning

Do not take the definition “independent” literally it must be real independence. No more working in the same office doing the same job for the same company. You must be on your own; you need to have your space and time to do the job under your control. The company you are working for need to receive the service on the terms upon you agreed.

Remember that the big brother IRS need to see that you are working independently. Being unable to show that you are acting as an independent can make you subject to penalties according to the same new law about pass-through.

Read the IRS rules on defining independent contractors before making wrong decisions

Two more income sources are not eligible for the pass-through deduction, Income from a foreign source and income from an investment. A good measure to avoid mistakes will be using a service business as a tax consultant or the same IRS guidance.

From a taxation point of view, being independence for median range salaried W-2 income has its sweet dollars extra. In the side of labor law, stability in the job and other benefits a careful look must be made before being an independent small business.

Paystubmakr.com team hopes that you enjoyed reading this blog.